LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimalcapital structure. Its outstanding bonds have a 12 percent coupon, paidsemiannually, a current maturity of 17 years, and sell for $1,162. It has100,000 bonds outstanding. The firm can issue new 20-year maturitysemiannual bonds at par but will incur flotation costs of $50 per bond (Hint:the coupon rate on the new bonds = the YTM on existing bonds). The firm%3Dcould sell, at par, $100 preferred stock that pays a 12 percent annualdividend that is currently selling for $120. The firm currently has 1,000,000shares of preferred stock outstanding. Rollins' beta is 0.89, the risk-freerate is 3.54 percent, and the market risk premium is 6 percent. Thecommon stock currently sells for $100 a share and there are 5,000,000shares outstanding. The firm's marginal tax rate is 40 percent. What is theWACC?

WACC means weighted avg. of the cost of different sources. It simply can be computed as sum of…

LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162. It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hir the coupon rate on the new bonds = the YTM on existing bonds). The firr could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,00

LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162. It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hir the coupon rate on the new bonds = the YTM on existing bonds). The firr could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,00

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 17P

See similar textbooks

Similar questions

Assets, Inc., plans to issue $8 million of bonds with a coupon rate of 11 percent, a par value of $1,000, semiannual coupons, and 20 years to maturity. The current market interest rate on these bonds is 10 percent. In one year, the interest rate on the bonds will be either 12 percent or 8 percent with equal probability. Assume investors are risk-neutral. a. If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162. It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds = the YTM on existing bonds). The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 1.34, the risk-free rate is 1.77 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares outstanding. The firm's marginal tax rate is 40 percent. What is the WACC?
Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 30 years to maturity. The current market interest rate on these bonds is 6 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral. a.If the bonds are noncallable, what is the price of the bonds today? b.If the bonds are callable one year from today at $1,080, will their price be greater or less than the price you computed in (a)? Why? please show all work.
The Cougar Corporation has issued 20-year semi-annual coupon bonds with a face value of $1,000. If the annual coupon rate is 12% and the current yield to maturity is 10%, what is the firm’s current price per bond?
Two years ago, Company XYZ issued $100 million worth of ten-year bonds with a face value of $1,000 and a coupon rate of 5%. Coupon payments are made semi-annually. Two years ago, the market yield-to-maturity was 3% p.a. Due to the increased insecurity facing the industry, the market yield to maturity is now 7% p.a. a) Determine the market price of the bonds at issue based on an appropriate model. b) Based on the yield-to-maturity today, assess whether the price has changed and proceed to determine its market price today. c) Compare the results in (a) and (b) above and interpret the sensitivity of bond prices to maturity and yield to maturity.
Assets, Incorporated, plans to issue $8 million of bonds with a coupon rate of 7.6 percent, a par value of $1,000, semiannual coupons, and 25 years to maturity. The current market interest rate on these bonds is 7.1 percent. In one year, the interest rate on the bonds will be either 9 percent or 4 percent with equal probability. Assume investors are risk-neutral. a.If the bonds are noncallable, what is the price of the bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b.If the bonds are callable one year from today at $1,040, will their price be greater or less than the price you computed in part (a)? multiple choice Greater Lesser
LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162 (Hint: use the current bond price,$1,162, when computing market value of debt). It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds = the YTM on existing bonds). The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 1.37, the risk-free rate is 2.42 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares outstanding. The firm's marginal tax rate is 40 percent. What is the WACC?
Blackstone Energy is planning to issue two types of 25-year, non-callable bonds to raise a total of $6 million. First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million. Second, original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be sold, but these bonds will have a nominal coupon of only 7.05%, also with annual payments. The OID bonds must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par bonds. How many OID bonds must the firm issue to raise the other $3 million? You may round your answer up or down to a whole number of bonds. Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that price into the $3 million. Your answer should be between 3150 and 4850, with no special characters.
YunJun, Inc. is contemplating to issue a 15-year convertible bond that would be priced at its $1,000 par value. The bonds would have a 9.00% annual coupon, and each bond could be converted into 25 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 11.00%. The stock currently sells for $42.00 a share, has an expected dividend in the coming year of $2.10, and has an expected constant growth rate of 6.00%. What is the estimated floor price of the convertible at the end of Year 3?
XYZ Inc. is a company that is considering issuing bonds to finance the expansion of its activities. The managers thought about bonds with 10 or 15 years to maturity, with a coupon rate of 6%, paid semiannually. The face value of those bonds would be $1,000 and theywould expect those bonds to pay just as much as investors require, being sold at par at the issuance date. Suppose that an investor is interested in the company’s bonds, and they expect that the interest rates (YTM) are going to change immediately, decreasing by 2 percentage points compared to the YTM at issue. Which maturity bond would be better for this investor, the 10 or 15-year? What would be the dollar gain per bond with the expected immediate YTM change in each case?
Frostbite thermalwear has a zero coupon bond issue outstanding with a face value of 18,000 that matures in one year. The curent market value of the firm assets is 22,000. The standard deviation of the return on the firm assets is 51 percent per year, and the annual risk free rate is 7 percent per year, compounded continuously. what is the Market value of the firm's equity? What is the Market value of the firm's debt?
sunburn sunscreen has a zero coupon bond issue outstanding with a $21,000 face value that matures in one year. the current market value of the firm's assets is $22,800. The standard deviation of the return on the firm's assets is 26 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. based on the black-scholes model, what is the market value of the firm's equity and debt?